Page 27 - How To Avoid Going Bust In Business

10: Talk to your creditors

Sure it’s hard. You have to get on the phone and level with them. Most of them will
cut you a little bit of slack. If nothing else they’ll stop hounding you which, of itself,
reduces the stress level.

Above all be honest with them. Don’t say you’ll pay them next week when you know
full well that’s a promise you can’t keep. Firstly, because when they find out that you
haven’t been straight with them their trust in you is destroyed and that will make
things more difficult later on. They will be less inclined to come to any sort of salvage
arrangement. They’ll get angry and decide to put you under.

There’s a second reason. Life will go on, even if the worst happens. You will need
to work, you might even start again in business. If you have been honest and up
front you’ll find friends in strange places. Businesses and contractors that have lost
money on you might accept that you gave it your best shot, you levelled with them
and therefore they’ll be more inclined to trust you next time.

In my times of crisis I have only ever had one creditor go totally feral on me. We
actually got before a judge in an application for bankruptcy. I told the court my story,
outlined my recovery plan. The judge, who saw the bigger picture, told the creditor to
back-off, come to a repayment arrangement, and see what happens over the next
six months.

That adjournment bought me enough time so that, at the end of the six months, while
I wasn’t home clear, I was able to show that I was making steady inroads into the
problem. The judge threw the bankruptcy application out.

If you are renting commercial premises talk to your landlord about a rent holiday.
Most landlords don’t want to lose a tenant. It can take months to fill a vacancy.
Better, maybe, to give you a reduced rent for a while, or two or three months free
rent than face an empty building.

Tell the creditors you are formulating a recovery plan. Tell them that you have
started by slashing expenditure to the bone. You’ll get back to them shortly to let
them know how you plan to resolve the problem.

There will be certain creditors that are critical to the survival of the business. Major
suppliers of stock and supplies, for instance. Utility companies like phones, internet,
power etc. If necessary offer to go on to a cash-on-delivery basis until things improve.

Most suppliers don’t like to lose a customer. They also know that if you go belly up
they risk losing whatever they are owed. They therefore have a strong motivation to
keep you rolling, so long as they can see that the business is viable.

Bring the professionals in. Your accountant can be a great help. If he or she talks to
creditors and reassures them that the business is salvable, they’ll give you more
running room.